Deft distiller determined to grow

Headline earnings rose 17,9% to R542,3 million, while headline earning per share increased 17,4% and a dividend of 104 cents per share has been declared, an increase of 19,5% on the previous year's interim payment of 87 cents per share.

Trading income grew 17,3% thanks to good revenue growth and the continued benefits derived from enhanced throughput. MD Jan Scannell said the company's ability to keep on raising the performance of its operating units had made it possible to boost investments in brands and step up marketing and sales support, while improving the net operating margin from 15,6% to 16,2%.

Domestically, sales volumes increased 5,4%. Cider brands Savanna and Hunter's, and other RTDs (ready-to-drink beverages) maintained their impressive growth trajectory with sales volumes climbing 10,6%, despite a national shortage of bottles and carbon dioxide (CO2), as well as capacity limitations at the company's own production plants. “Alternative bottle supplies have been sourced in Latin America and the Middle East, while our pilot carbon dioxide recovery plant in Paarl is starting to provide us with gas for carbonating our ciders. We have also successfully commissioned additional facilities to expand production capacity,” Scannell said.

The company's recovery facility captures the CO2 released during the fermentation of the ciders and purifies it to food-grade quality for re-use.

Wines deliver profitable volumes

He said the solid growth achieved in brown spirits and liqueurs had been tempered to some extent by the white spirits segment, which remained under pressure. As a consequence, spirits volumes increased by 2,3%. He added that despite a fragmented and highly price-competitive market, the wine portfolio had still managed to deliver a profitable volume growth of 1,9%.

“Protection of brand equity remains paramount. We do not chase volumes at the expense of brand reputation or profitability.”

Scannell highlighted the major progress made on international markets (outside Africa), where revenue had risen 20,7% on a sales volume growth of 17,7%. Both spirits and wines recorded excellent growth, he said. Spirits volumes were up 11,9%, with good progress made across key markets in Europe, Latin America, Asia and Canada, while wine sales volumes had reflected a growth of 18,4%. This was ahead of the rate of volume increases delivered by the local wine industry on export markets. The company's growth in wine volumes, he said, had come from established as well as newer markets in the Baltic region, Latin America and Australasia.

Revenue derived from African countries grew 23,8% on a volume growth of 19,7% with the area beyond the BLNS countries (Botswana, Lesotho, Namibia and Swaziland) recording revenue growth of 33,3%, to make a significant contribution to the region. “We are extending our footprint across the continent to capitalise on the rising disposable income that is being fuelled by a robust commodities sector, the improvement in infrastructure and increasing tourism. We are well placed to meet the demands of a new generation of affluent, mobile Africans who want to be able to consume the same brands they find on their travels.”

Total assets increased 7,2% to R6,4 billion. Capital expenditure amounted to R252,3 million of which R142,9 million was spent on expanding cider and spirit production capacity and on the refurbishment of the company's Wadeville plant.

Inventory increases

Investment in net working capital increased R475,8 million to R2,3 billion. With the increase in spirits stocks kept under maturation in anticipation of longer-term demand, as well as an additional investment in packaging materials in the face of erratic supplies from manufacturers worldwide, inventory rose by R364,5 million.

Cash generated by operating activities amounted to R571,9 million (2006: R877,7 million) with the company remaining in a strong financial position, given its cash and cash equivalent balance of R173,0 million.

Referring to the prospects for the local market, Scannell said higher fuel and food prices and increased debt-servicing costs were putting the brakes on spending but that continued growth was being projected, albeit at a reduced pace. “The economic fundamentals remain sound and the demand for affordable luxuries should persist. However, the erratic supply of electricity has already had a disruptive impact on business and is impacting on Distell's ability to meet market demand.”

Internationally, trading was expected to remain tough. “Nevertheless our ability to trade across a wide geographic front with a range of products spanning a spectrum of beverage categories and price points equips us to respond to the challenge. We are expecting to show continued growth in revenue and earnings.”